Ukraine May Join Russia to Shun Kyoto as Credits Fall

Dec. 14 (Bloomberg) -- Ukraine may join Russia in shunning
the extended Kyoto Protocol after United Nations envoys approved
a text the two nations didn’t agree with, according to the
Centre for European Policy Studies in Brussels.

Ukraine, the eastern European nation located in the
natural-gas trading corridor between the EU and Russia, is
listed in a Dec. 8 text outlining the conclusions of climate
talks held in Doha as agreeing to cut its emissions by 20
percent of 1990 levels by 2020. They had already fallen by 60
percent in 2010, according to data published by the UN Framework
Convention on Climate Change in Bonn on Nov. 16.

Another section of the Doha text would cancel any surplus
sovereign emissions permits for the eight years through 2020
above the average annual emissions of the country in the three
years through 2010. That clause may in effect require Ukraine,
Belarus and other nations outside the EU while joining Kyoto to
take a smaller cap, according to Norton Rose LLP. Russia has
said it won’t join Kyoto’s extension. Regulatory uncertainty
drove UN offset prices to record lows this week.

“Ukraine and Belarus are less likely to ratify the second
commitment period of the Kyoto Protocol” because they object to
the text, Andrei Marcu, senior adviser to the Centre for
European Policy Studies in Brussels, said yesterday in a report
on the Doha talks. CEPS advises on government policy.

For Ukraine, parts of the text seem to oppose other
sections, Marcu said. The clause that may require Ukraine to
take a smaller cap goes against a footnote in the table
referencing Ukraine’s target, which reads: “Should be full
carryover and there is no acceptance of any cancellation or any
limitation on use of this legitimately acquired sovereign
property.”

‘Full Carryover’

Full carryover implies Ukraine wouldn’t cancel any of the
surplus Assigned Amount Units it has accumulated in the first
Kyoto period, which runs from 2008 through this year. AAUs are
the basic accounting permits in the Kyoto system governing
emissions in 37 developed nations through 2020. “The conditions
for Ukraine’s commitments are directly contradicted by the
approved Kyoto Protocol text,” Marcu said.

John Hay, spokesman for the UNFCCC in Bonn, declined to
comment immediately when reached by phone today.

Russia has appealed against the Doha decision, saying the
nation’s attempts to speak at the meeting last week were
improperly suppressed.

“We are highly disappointed in both the procedural
violations and the conduct of business,” Oleg Shamanov, the
nation’s chief climate negotiator, said in an interview in Doha
as the talks drew to a close. “There will be very serious long-term consequences for the process.”

Less Incentive

Should Ukraine and others stick with Kyoto and adopt a
tighter cap, those nations would probably have less incentive to
create Emission Reduction Units under the Joint Implementation
program after this year, according to Bloomberg New Energy
Finance. ERUs can be used for compliance in the EU carbon
market, the world’s biggest by traded volume. The largest
suppliers of them are Russia and Ukraine, UN data show.

“If Belarus, Kazakhstan and Ukraine create an ERU for the
2013-20 crediting period, they will potentially need to find
another reduction or allowance to make up for the traded one, as
Compliance Period 1 surplus AAUs will be locked up in reserve
accounts,” Richard Chatterton, an analyst at the research
company in London, said yesterday by phone. “This is likely to
improve the environmental integrity of Compliance Period 2 ERUs
and may result in a lower issuance rate.”

‘Price Crashes’

Carbon markets don’t work well at the moment because most
nations including the U.S. are not participating in them, Alf
Wills, South Africa’s chief negotiator, said an interview in
Doha on Dec. 8. Other nations need to be drawn in over the next
eight years as the world negotiates carbon budgets or a Kyoto-like replacement to begin at the end of the decade, he said.

“When you start generating supply of credits and you don’t
match that with a cognizant increase in demand through a carbon-budget approach, then the price crashes, which we have
witnessed,” Wills said.

Emission Reduction Units for this month rose 27 percent
today to 28 euro cents a metric ton on ICE Futures Europe
exchange in London at 12:47 p.m. The reached a record low 15
cents in intraday trading on Dec. 12.